Crude Oil

What is Crude Oil?

Crude oil occurs naturally and is an unrefined petroleum which is made up of hydrocarbon deposits and other organic materials. Crude oil can be used to produce products such as gasoline, diesel and other forms of petrochemicals. It is also known to be a non-renewable resource, and a fossil fuel. This means it can't be replaced at the rate at which it is consumed.

Uses of Crude Oil

Crude oil is used in the same ways that other crude oil is, the difference being that it has a different sulphur content. The uses for crude oil once refined can include but not limited to the production of:

  • Nylon
  • Polyester
  • Gasoline
  • Diesel
  • Plastic
  • Fertiliser
  • Heating Oil
  • Asphalt
  • Propane

Risks of Crude Oil

Like any futures contract, there is always the possibility that the underlying asset i.e. crude oil will move in the opposite direction to which you hold your contract. For example: you have taken a long position (expecting the price of crude oil to rise), if this were to happen and the crude oil fell in price, your long position in crude oil will decrease in value.

With any commodity, supply and demand will affect the price dramatically if there is a change, this risk is one that should be monitored on a regular basis and adjusted to suit your risk parameters.

Mining of crude oil has an inherent risk with the level of costs associated with extracting the product from the earth. This can include, but not limited to: the cost of oil to fuel machinery, cost of labour or new tax regulations being implemented.

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